The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Controlling Impulses No Matter What
08/13/2015 6:00 am EST
While some traders may find it relatively easy to stick with their trading strategies no matter what, this may prove difficult for others, so Frank Kollar, of Fibtimer.com, points out several steps to take in order to ensure discipline and better control of all those emotional trading impulses.
Winning market timers have learned to control their impulses. They can follow buy and sell market timing signals effortlessly. They show extreme self-control.
Rather than give into their urges, they stick with their timing strategy knowing there will be days when they are in the red, but that over time they will be profitable and also (importantly), they will never suffer a big loss.
Depending on your personality, you may have difficulty controlling your impulses. But whether you find discipline easy to control or difficult, there is much that can be done to ensure you follow your timing strategy.
Regret Comes Later
The most common way market timers act impulsively is by abandoning their timing strategy.
Once you decide to follow a specific timing strategy, it is vital to follow it. But this can be difficult to do. Even though we have years of experience here at FibTimer, that does not mean we do not have the urge to change a trade.
Those years of experience have not dulled our emotions, but they have taught us to stick with our timing strategy. Like anyone else, we learned the hard way. We exited strategies with the best of intentions and with great conviction. We also lost money almost every time.
It seems easy when you first start following a strategy, but while in the midst of a bullish or bearish position, it can be hard to stay with it.
At any given point, you may look at the market action and think, "there's no way this trade can work."
If you are an extremely seasoned timer, you have the experience and judgment to stay with the strategy. Novice market timers, in contrast, tend to abandon their plan prematurely and regret it later when they find that had they been able to stick it out a little longer, they would have made a greater profit or avoided a big loss.
It may be hard, but novice market timers must fight the impulse to exit a position prematurely.
The Big Picture
The first step to gaining impulse control is to identify the reasons you want to control your impulses...in other words, the downside of abandoning the timing strategy.
The obvious reason market timers desire to stay with a strategy is to maximize profits. The profits on winning trades must compensate for losses on losing trades.
Following a well defined timing strategy usually insures profitability overall. You will have an easier time sticking with your plan if you frequently remind yourself that in the big picture, following the strategy is the key to profitability.
You may even want to write it down on a Post-it note and stick it on your screen, so that while you are struggling to fight an impulse, you'll remember why you are doing it: The more discipline and self-control you achieve, the more profitability you'll achieve in the long run.
Fear and Greed
Many times impulses are difficult to control because of emotional states.
The emotions of fear and greed are the two most compelling urges that trick market timers into abandoning a perfectly good timing strategy. Exiting a timing strategy may give you a good feeling for a day or two, but you will have joined the herd of millions of investors. And overall, the herd loses money.
By self-monitoring your emotions, you can identify how they lead to impulsive decisions. By identifying how fear and frustration precede impulsive decisions, you can control these emotions and remain disciplined.
It takes time to control emotions. Don't give up. Staying with a timing strategy through a difficult period, and then realizing you have not only beaten the market, but also your own emotions, is very rewarding.
Staying with a timing strategy for several years, and looking back at the huge up and down market swings caused by the emotions of investors (the herd) and realizing that you not only avoided them, but steadily achieved a profit when most have lost money, is incredibly rewarding.
By Frank Kollar, Editor, Fibtimer.com
Related Articles on STRATEGIES
Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Profit from a market by capturing a trend. Money management is key. The battle is often from within,...
Has Mr. Market (S&P 500/Equities) priced into too much positivity, while inflation remains at ba...